As Americans entered the President’s Day weekend, a report on inflation at the wholesale level gave the latest reminder that the battle against rising prices still is not over. Prices rose more in January than economists had expected, and the numbers followed a similar report from earlier in the week that showed living costs for U.S. consumers climbed by more than forecast.

The data may have kept the door closed on hopes that the Federal Reserve could begin cutting interest rates in March, as traders had earlier hoped. 

The yield on the 10-year Treasury climbed to 4.29 percent from 4.23 percent late Thursday, February 15th. The two-year Treasury yield, which more closely tracks expectations for the Fed, touched its highest level since December 2023 (1).

On February 27th, the December 20-city annual S&P CoreLogic Case-Shiller home price index accelerated to 6.1% from November’s 5.4%, versus consensus of 6% in a Wall Street Journal poll. On February 27th it was reported that January durable goods sales declined 6.1%, versus estimates of a 5% shrinkage (2).

Higher interest rates and yields make borrowing more expensive, which can slow the economy and impact prices for investments.

‘Inflation Is Still Too High,’ Fed Chief Says

The Federal Reserve kicked off the year in neutral, opting to keep interest rates unchanged at a meeting of its policy-setting committee on January 31st.

The call, which was widely expected and unanimous, keeps the target range for the federal-funds rate at 5.25%-5.50%.

The Federal Open Market Committee’s policy statement omitting language suggesting there are more interest-rate increases to come. 

Fed Chair Jerome Powell began his post-meeting press conference by reiterating that inflation is “still too high,” later adding that a March rate cut was not likely. 

Annual core PCE – known as the personal consumption expenditures price index were no worse than expected when reported on the leap day of February, but the strong reading for core prices was not good news for the Federal Reserve as it keeps pushing to bring inflation back to 2%.

Markets felt relieved that prices did not rise faster, and that the annual pace of PCE inflation remains below 3%. And thanks to beneficial, high base effects from a year ago, the annual headline and core rates drifted lower.

Still, the rise in monthly core levels means the six-month annualized core PCE is now running at 2.5%, up from below 2% in December 2023. (3)

The 10-year Treasury yield is at 4.293%, a little lower than this year’s high reached after the surprisingly strong CPI reading in early February. The two-year treasury yield is at 4.695%. 

In a series of eleven increases since March 2022, the Fed has taken up its key borrowing rate by 5.25 percentage points to reach its highest level in more than 22 years. Regardless, consumers, who power about two-thirds of the entire $26.8 trillion U.S. economy, have persevered. (4)

Overall, 79% of the companies in the S&P 500 have reported actual results for Q4 2023 to date. Of these companies, 75% have reported actual EPS above estimates, which is below the 5-year average of 77% but above the 10-year average of 74%. In aggregate, companies are reporting earnings that are 3.9% above estimates, which is below the 5-year average of 8.5% and below the 10-year average of 6.7%. Historical averages reflect actual results from all 500 companies, not the actual results from the percentage of companies that have reported through this point in time. (5)

In this highly contested presidential election year, expect the unexpected. The markets dictate the economy, not the other way around. Plan and stay disciplined about your asset allocation strategies. When you need to be defensive, cash can be your friend.

If you need to define whether you have any financial blind spots, please reach me directly at 

Mark Martiak

mmartiak@gmail.com

1. U.S Department of the Treasury website.

2. S&P Dow Jones Indices (S&P DJI) February 27, 2024

3. Treasury Yields Hover Around Recent Highs by Paulo Trevisani, Dow Jones Newswires and BARRON’S ADVISOR February 27,2024 

4. Press Release: Federal Reserve issues FOMC statement on November 1, 2023.

5. FactsetS&P 500 EARNINGS SEASON UPDATE By John Butters  |  February 16, 2024

Mark Martiak is a New York-based Investment Adviser Representative and Accredited Investment Fiduciary®. With Manhattan Global Wealth Management, LLC. Mark is a regular Contributor to VEGAS LEGAL MAGAZINE and has appeared on CNBC’s CLOSING BELL, YAHOO! FINANCE MIDDAY MARKET MOVERS, FOX BUSINESS NETWORK and has been quoted in THE WALL STREET JOURNAL, Bloomberg.com and Investment News. 

Such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data is taken from sources believed to be dependable, but no guarantee is given of its accuracy. Indexes are unmanaged, and investors are not able to invest directly into any index. Past performance is no guarantee of future result.

News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified, when necessary, with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not happen. U.S. Treasury securities are guaranteed by the federal government as to the principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of thirty widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of five hundred largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. The market indexes listed are unmanaged and are not available for direct investment.